Write off Older Income Taxes Through “Straight Bankruptcy”

To discharge (write off in bankruptcy) an income tax debt, the tax must meet four main conditions, as follows:

1. Three years passed since the tax return was due?

Every income tax obligation has a fixed date for which its tax return must be filed, of course usually by April 15 of the following year. Three years must have passed from that due date until the filing date of your bankruptcy case to meet this first condition.

However, if you asked for an extension of time to file the return for that year—usually extending the due date from April 15 to October 15—the three-year period begins only at that extended due date.

For example, if the tax return for 2012 income taxes was due on April 15, 2013, then if you got an extension the return was probably due on October 15, 2013. This 3-year condition would be met if you filed bankruptcy after April 15, 2016 without having gotten an extension, or after October 15, 2016 if you did get an extension.

2. Two years passed since the tax return was actually filed?

At least two years must have passed since the return was in fact filed, regardless when that return was due.

To meet this condition you must have actually filed a tax return—it doesn’t count for the IRS in effect to prepare a tax return on your behalf when you don’t file a return.

3. 240 days passed since “assessment” of the tax?

“Assessment” is the IRS’s or other tax authority’s formal determination of your tax liability. This usually happens when it reviews and accepts your tax return, with or without corrections.

In most situations an income tax is assessed within a few weeks after you file it. But sometimes it’s delayed because of a disputed tax amount resulting from an audit or a challenge in tax court. Then by the time the accurate tax amount is assessed, the above three-year or two-year time periods may have already passed. That’s when this third condition kicks in: the tax cannot be written off unless the bankruptcy case is filed more than 240 days after this assessment.

4. Fraudulent tax return or attempt to evade the tax?

If you are dishonest on your tax return—not including some of your income or claiming inappropriate deductions, or evaded paying the tax somehow, that tax will not be discharged, in spite of meeting the other three time-based conditions.

Beyond these four conditions, there can be other factors affecting the situation, such as recorded tax liens, a prior bankruptcy, amended returns, late-filed tax returns, and mistakes on returns. If you owe taxes and are considering bankruptcy you absolutely should get legal advice about your tax debts.

So if you are in the Dallas-Fort Worth Metroplex, let me help you through this minefield. I’m Carrie Weir, a highly experienced Texas bankruptcy lawyer. I serve the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please contact me for a free and confidential consultation. Please either just call me at 972-772-3083 or use the contact form here.